TMFLomax (89.83)

Bernanke's "News Flash"

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Oh hey, surprise! Things aren't good with the U.S. economy. All I could think when I saw that "news" yesterday was that it was just a very late concession of what a lot of us probably already suspected. All you have to do is open your eyes and look around, or listen to people's stories, and there is still plenty of pain out there. Empty store fronts, people walking home with bags of groceries because they can't afford the gas, bus queues with lines of people... grocery receipts with amazing levels of sticker shock.

This morning it popped into my head that power may corrupt, as we all know, but it can also make you kind of myopic and, I don't know, stupid maybe. As soon as somebody gets into some position of power, they're surrounded by people who are going to sacrifice the truth to tell what that person in power wants to hear. Didn't Shakespeare's Prince Hal talk about the idea of going out disguised to hear what the common people REALLY think and feel? I think that's kind of a powerful testament to this sort of thing. I think about all the politicians and people like Bernanke who are sitting around, shut off, in ivory towers and with security details and somehow have no idea what's really going on out there.

Anyway, my thoughts for the day... mostly that the Fed's "news" wasn't really news at all to anybody who's been paying attention.

The Fed was not trying to pretend it was breaking news that nobody previously knew about. Yes, if you set up a straw man, he falls. The Fed was expressing the views its research shows. If that reflects reality, it just shows the research is correct.

You don't need to love the Fed. But yeesh, it was just not pretending to make breaking news by saying things aren't so good. The fact that would say it was or imply that it was indicates, respectfully, an opinion grounded largely in emotion, and a desire to make facts fit that opinion. Or at least a gratuitous desire to find some reason, any reason, to bash the Fed.

Well I think a lot of people do look to the Fed for some sort of "guidance" or "expert opinion" of what's going on with the economy. Like if the Fed thinks things are in some way on track, then they must be. I look back on things like Alan Greenspan's comments on "irrational exuberance" with the dot-com bubble (and his lack of a similar warning about the housing situation), as well as Bernanke's statements prior to the realization that we were already in a recession in 2008 when he was somehow saying that wasn't the case... I don't know. People seem to put a lot of stock in what Fed chairmen have to say, and their economic "predictions." Not sure it's worthy. (This is also frustration built upon an extremely bizarre bull market -- arguably fired up by the Fed's monetary policy -- when clearly the economy wasn't on good footing, as well as the sense that a lot of people seemed to believe that things were better than they were. Just a build-up of irritation over factors that might have colluded to make some people argue things were somehow better than they really were, I guess, ha.)

Love it, Cato! Yeah, I do agree there are opportunities out there now -- as long as people pick good, strong companies (my usual drumbeat!). The weak money has been buying a lot of bad, weak stocks for a long time now.

In it he explains how the economist's official definition of a recession had not yet been met. You see, economists cannot declare a "recession" until there have been two straight contractionary quarters. He also acknowledged that didn't matter, and that things were bad.

1) It takes a lot longer to compile the data than it does to walk past an empty storefront.

2) By definition, more importantly, since it takes two quarters of contraction before economists declare a recession, I am afraid you are always going to be exceedingly disappointed by Fed statements that will always, by definition, declare a recession after we know things are bad. In reality, everyone who knows anything about analyzing manufacturing indexes, consumer sentiment, etc., will have already known long before the actual, official, economist's declaration of a recession that, in your words, "we were already in a recession." By the time economists declare a recession, there have been bajillions of articles and blog posts speculating about a recession and wondering whether economists will actually determine, later, that yes, in fact, there have been two contractionary quarters in a row and yes, in fact, we are in a recession.

And Cato, while I agree with you about the freakout, and we have agreed on that in the past I think, it is not entirely true that this is "weak" money. Your presumption that this drop is caused by weak people who should be in index funds improperly assumes that most money in the market is run by individuals like you in me. That is not supported by data, as far as I know. As far as I know, the vast majority is run by hedge funds, mutual funds, pensions, and companies (sometimes the pensions are themselves invested in hedge funds). If you think that most hedge funds and mutual funds are weak money, you are correct (and maybe many mutual fund managers should just fire themselves and invest in an index fund). I would argue what we are seeing is largely huge players shifting money for technical and/or momentum reasons, as well as for fundamental reasons.

But, what do make of the Fedex guidance which is far more positive now than Bernanke?

Fedex saw great business pickup outside the US in the first half of the year, and is expecting US business picked in the second half. The Fedex prediction of GDP growth for US was almost 1 point over what the Fed/Bernanke were predicting.